Elaine Stokes, co-head of Loomis Sayles Multisector, Full Discretion Team, shares views on navigating covid-driven markets during Q2, the Fed’s playbook, new issuances, value opportunities and default risks. Below are some highlights:
- Market participants are focused on promising vaccine prospects.
- There are long-term, lingering economic effects to consider, but government and fiscal policy action around the globe has allowed markets to re-accelerate.
- The Fed has provided a backstop to almost all of the credit markets, even reaching down to high yield in ETFs.
- The more challenging part of this market is buying away from that new issue market.
- We went from late cycle through the downturn in record time – and right into credit repair. We can expect to stay in this credit repair period for an extended period of time.
- We can expect interest rates to remain low, policy to remain easy, but there's a huge restructuring going on in the economy.
- Consumer behavior has changed during the pandemic, but we just don't know how much of that behavior is going to be maintained. A lot of business has really shifted from small, local to large, more stable businesses. We are watching companies in the middle to see how they react to the changes in supply chains and consumer behavior and trends.
- Default rates have risen within high-yield, up to around 6.5%.
- What we're really focused in on is that belly of the curve, the Triple-Bs and Double-Bs where most of the fallen angels are. In this area we are finding select value opportunities among good businesses with smart business plans to capture the changes in the economy.
- Autos and home equity have been beneficiaries of the current environment – as people are more interested in having their own car and not using public transportation and getting home projects done while they're social distancing and not travelling.
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